Managing the Costs of Long-Term Care Insurance
By: Ann Carrns (New York Times) September 2015
New York consumers are among the latest to receive word of double-digit increases in the premiums they must pay to keep their insurance coverage for long-term care.
Insurance regulators in many states have been approving large increases in long-term care premiums for older policies, as it became clear that insurers badly misjudged the pricing on the policies and are losing money on them. In particular, regulators say, insurers overestimated the number of consumers who would let their policies lapse before filing any claims. That means more people are holding on to the policies, raising the likelihood of more claims.
Long-term care insurance pays for care at home or in an assisted living or nursing home, which can be quite costly. Typically, people needing such care cannot bathe or feed themselves without help, or have Alzheimer’s or other forms of dementia. Medicare typically provides limited long-term care coverage, while Medicaid pays for those with limited income and financial assets.
Lisa Dubrow, a lawyer in Manhattan, said she received a letter from Genworth Financial informing her that her policy’s annual premium would jump by 60 percent in October, to more than $7,300 from about $4,600.
“I am stunned,” said Ms. Dubrow, whose policy became effective in 2008.
Other policyholders say they recently received similar letters, notifying them of increases of 48 to 60 percent for policies they bought years ago.
New York state insurance regulators in April approved increases sought by three insurers: Genworth, MetLife and First Unum. Insurers must notify policyholders at least 60 days in advance of such increases. Roughly 105,000 policyholders are affected. Insurers must offer a options for policyholders to maintain or lower their premium, such as by reducing protection from inflation. Insurers may not seek additional increases for at least three years, although it is possible they may request further increases after that.
Genworth requested increases of 80 to 85 percent, and was approved for 60 percent on policies sold before 2011, according to the state Department of Financial Services. Genworth has obtained approvals this year for rate increases on certain policies in 17 states, according to a transcript of a call last month discussing the company’s quarterly earnings. Genworth said it was being hurt by the “higher severity” of new claims, and that obtaining rate increases and benefit reductions in outstanding long-term care policies was a “top priority” for the company.
Some insurers, like MetLife, stopped marketing new long-term care policies years ago, but are raising rates on policies sold previously. MetLife requested an increase of 58 percent and was approved for 48 percent on certain policies; some affected were sold before 2003, while others were sold as recently as 2008.
First Unum requested an increase of 86 percent and was granted 48 percent on policies sold through 2005.
Also, the state in June approved a round of smaller increases — 5 to 21 percent — on thousands of other policies issued by MetLife and several other insurers. These policyholders may not be offered the option to lower their inflation protection, although they may be able to adjust other benefits to make their premium more affordable, according to the Department of Financial Services.
Ronald Klug, a spokesman for the department, said of the premium increases: “Through the rate review process, we seek to protect consumers by striking an appropriate balance between affordability and maintaining continued access to these products in the marketplace.”
A letter from MetLife to Marc Wortsman, 66, a retired marketing executive, said the annual premium on the policy he bought in 2008 would increase by more than $1,200. “Please note that MetLife originally requested a larger increase,” it said, “but a 48 percent increase is being applied to your policy.”
“The long-term care insurance industry as a whole is facing challenges as a result of evolving actuarial assumptions on pricing, and MetLife is no exception,” the company said in a statement.
Thomas Dignan, an insurance broker with Frenkel Benefits in New York, said that most premium increases he has seen have been around 10 to 15 percent, and that most policyholders have chosen to pay the higher premium and maintain their coverage. “They value the benefit,” he said.
Policyholders hit by the largest increases may lower their inflation protection, from 5 percent to around 3 percent, or in some cases less, to hold down their premium. But that means they would have to pay more out of pocket for care if they need it.
Ms. Dubrow, who is 59, said that to afford her policy, she might have to reduce her inflation protection or take other options that Genworth offered — like reducing the amount of her daily benefit or lengthening her policy’s “elimination period,” or deductible. She said she had understood that rate increases could be possible, but that she hadn’t anticipated the magnitude of the current increase.
Here are some questions and answers about long-term care insurance premiums:
■ Do the increases affect new long-term care policies?
The large state-approved increases apply to renewals for older policies, not to newly issued policies. But rates for some new policies have been rising, too. A healthy 55-year-old man would now pay, on average, $2,075 a year for $164,000 in initial benefits, up from $1,765 last year, or nearly 18 percent more, according to the American Association for Long-Term Care Insurance, an industry group. (The policy includes 3 percent inflation protection.)
■ Does it make sense to cancel my older policy and shop for a new one?
Jesse Slome, executive director of the long-term care association, says it is unlikely you will find a cheaper policy if you bought one more than two years ago. Also, underwriting — an insurer’s analysis of your health and risk factors — is now more rigorous, meaning it might be harder to qualify for coverage. The National Association of Insurance Commissioners suggests that as a rule of thumb, premiums should total no more than 7 percent of your income.
■ What if I drop coverage?
Policies may include clauses that offer benefits equal to the amount of money you have already paid, Mr. Dignan noted. You should check your policy or ask your insurer for specifics. The insurance commissioners association offers a general consumer guide.
